UK Prime Property - A Waking Giant - Barclays Private Bank Financial Insights

The UK prime property market is finally stirring from its slumber – with ripples of a cautious recovery spreading across the landscape. Forget a uniform awakening, though. Some areas are flourishing with renewed interest, while others are undergoing a measured adjustment through improved affordability. Meanwhile, other pockets remain relatively subdued. It’s creating a nuanced picture, with distinct trends emerging across regions and property types.

“Green shoots are finally emerging in the UK prime property market, although it’s likely to see regional variations,” says Stephen Moroukian, Head of Product and Proposition for Real Estate Financing at Barclays Private Bank and Wealth Management. “Buyers are also increasingly focused on practicality – factors like commute times, reliable internet connectivity for remote work, and achievable budgets are taking centre stage.”

London outperforms regions

“London’s prime markets are now outperforming their regional counterparts1, reflecting a shift in buyer priorities,” says Frances McDonald, Director of Residential Research at Savills.

“The capital has also seen particularly strong growth, especially for larger family homes – a trend that’s held firm since the pandemic. What’s also interesting is the London flats market, which had faced challenges, has also begun to show signs of recovery.”

Post-pandemic gains offset

These recent signs of improvement follow a period of adjustment in the UK prime property market, triggered by the notorious “mini-budget” in September 2022. Savills reports a 6% overall decline in UK prime property prices since the mini-budget, eroding just over a third of the 17.6% post-pandemic gains1.

“However, significantly, a number of the UK's prime markets, particularly in London, have experienced growth in the first quarter of this year1 – marking the first positive movements since the mini-budget,” says McDonald.

Prime central London stalemate

The story is slightly different again for prime central London (PCL). This prestigious area, known for its opulent homes in Mayfair, Kensington and Chelsea, and for attracting international buyers, has seen almost flat growth since the mini-budget, falling by just 1% over the near two-year period2 – a milder decline than other prime markets.

As McDonald explains: “PCL is affected by a slightly different set of drivers, catering more to discretionary purchases – so any political or economic uncertainty feeds into that market.”

And while economic grey clouds may have dampened demand – causing some buyers to adopt a wait-and-see approach – London’s safe-haven status, and potential currency benefits for some international buyers, could explain its relative stability.

The return of urban living

Tom Bill, Head of UK Residential Research at Knight Frank, has also noticed other diverging trends, including a slowdown in higher-value prime markets. “Not a lot is happening at the top end,” he says. “In contrast, the lower-value domestic markets are still being driven by schools and jobs.”

Meanwhile, cities are experiencing more positive growth, due to a preference for urban living or a stronger job market in these cities – places like Edinburgh, Glasgow, Bristol, Bath and Oxford, according to Savills1 – while the commuter zones “are definitely expanding”, according to Bill. “It’s probably an hour and a half commute now before it starts to stop making sense,” he adds. “The M3 and M4 corridors [major transport routes connecting major cities west of London] exemplify this new sweet spot for commuters. It's all about the balance – the convenience of a manageable commute, weighed against the cost savings of moving further out from London.”

Signs of a rebound

Both Savills and Knight Frank agree that the market has bottomed out and is now in recovery phase – with increased activity across the regions and London. Agreed sales across the UK are up 15% compared to Q1 2023, with transactions returning to the volumes last seen in early 2022, according to TwentyCi, a UK property data company3. Improving mortgage affordability is also a contributing factor.

“Prices seem to have stabilised,” says McDonald at Savills. “While we're not completely out of the woods, inflation is showing signs of slowing down – although not quite as fast as some economists predicted. Nevertheless, there’s a significant rise in activity, which aligns with the positive trend of people feeling more confident about their budgets and the market in general.

“We’re also expecting to see a rise in property listings over the next quarter, offering buyers more options and putting pressure on sellers to remain competitive on price – so the recovery may not be linear.”

Bill at Knight Frank adds: “This year, we need to keep an eye on two key factors: mortgage rates and the timing of the general election. A later election date could fuel a stronger spring/summer bounce in the market. Additionally, any potential cuts to mortgage rates could further influence the recovery’s strength and pace.”

Is it time to rethink your property strategy?

While the prime property market is showing signs of an emerging recovery, the changing market landscape underscores the importance of estate planning, particularly for those with multiple properties.

Rising interest rates and a shifting market raise important questions for property owners. Should you hold tight with your property strategy, or is it time to explore buying and selling? For instance, should you hold onto that central London pied-à-terre, sell the spacious country estate, or consider buying a rental property in a thriving regional market?

“Regular reviews are good practice, regardless of market conditions – ensuring alignment with your evolving needs,” says Bill. “For instance, expiring fixed-rate deals and proposed ‘non-dom’ tax rule changes could also have an impact.

“And if you’re thinking of buying more property – costs, purchase price and mortgage rates remain key factors.

“But even with one property, planning is key. The trend of buying further out from London, driven by the pre-existing affordability squeeze – this wasn’t something that started suddenly during the pandemic. It is picking up again as hybrid working patterns become more established. However, it’s all an ongoing process – and it’s likely to be a few years yet before everything fully plays out.”

Strategic considerations for buyers

And as Moroukian at Barclays Private Bank and Wealth Management concludes: “For high-net-worth (HNW) borrowers reaching critical junctures in this dynamic market, comprehensive analysis is paramount before finalising any decisions. The current market presents a complex interplay of factors, as evidenced by the increasing use of flexible-rate borrowing strategies.”

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